RBI cuts rate but loans won't be cheaper right away

"Lower rates help loan growth and slow down deposit growth -- banks cannot afford that. At best, they may reduce rates marginally to show allegiance with RBI, not enough to reduce stress in the system."

Given that deposit mobilisation has been weak over the last few months, banks will have to cut deposit rates much more drastically before passing on the entire 50-basis-point rate cut. If banks cut deposit rates, fresh deposits will come under greater pressure.

Dinesh Shukla, research analyst at Sharekhan, says: "Banks will wait for further easing before cutting lending rates again.